Yellow circle

When you purchase a lifetime annuity you essentially hand over part, or all of your personal pension fund to the annuity provider in return for a guaranteed income for the rest of your life.

When taking out a lifetime annuity you can choose the features you wish to include. The features you select will determine what happens to the annuity after your death. These features include value protection and guarantee periods, or you can set up the annuity as a joint-life annuity.

You should be aware that the options you include will impact the amount of income you receive.

Single life annuity

If you take out a single life annuity and do not add any features that provide benefits after your death, your annuity income payments will stop once you die, with nothing payable to your loved ones. A single life annuity with no death benefits could be suitable if you have no financial dependants, if your partner has enough income from their own pension arrangements, or if they have a condition likely to shorten their life expectancy.

However, opting for a single life annuity with no death benefits could be unsuitable if you have dependants such as a spouse or children who you wish to provide for financially after your death.

Joint life annuity

A joint life annuity will provide you with a guaranteed income for life, but with the additional benefit of providing an income for your named spouse, civil partner or financial dependent, should you die before them. This income will be paid for the rest of their life.

The income paid to your named spouse or civil partner will be a percentage of the income you were receiving before your death, which you decide at the point of buying your joint lifetime annuity. The higher the percentage that you set, the lower your income will be.

This could be a good option if your partner does not have their own pension arrangements, or they have insufficient pension savings to manage financially without your income. However, because the annuity provider is assessing the life expectancy of both you and your named partner, your initial income will usually be lower than if you were selecting a single life annuity. So, it’s important to consider your current financial needs as a couple to establish what is appropriate for you.

Guarantee periods

If you take out an annuity with a guaranteed minimum payment period and die early, your annuity income will continue to be paid to your beneficiaries after your death for the remainder of that period. A guarantee period is set when you purchase your annuity and you can choose a period of time between 1 and 30 years, although some providers will only offer 5 or 10 years.

So, if you chose a 10-year period and died after 5 years, your annuity income will continue to be paid to your named beneficiary or estate for a further 5 years after your death. If you die after the 10-year period, nothing is payable after your death (unless you also selected a joint life annuity and your partner survives you).

Bear in mind, the longer guarantee period you choose, the lower your annuity income is likely to be, as it is guaranteeing to be paid for that minimum period.

Value protection

Value protection (also known as capital protection) is a death benefit option which allows you to protect all or part of your pension fund used to purchase your lifetime annuity. This option can return a lump sum to your named beneficiaries or estate if you die without having received the selected proportion of your pension fund.

For example, if you paid £100,000 for your single life annuity and selected 50% value protection (£50,000). If the total of the income payments you have received was £40,000 at the time of your passing, your chosen beneficiary or estate will receive £10,000 as a lump sum.

If your policy has already paid out more than the selected protected amount, there will be no lump sum paid out after your death.

Key points

  • When purchasing an annuity, death benefits can include value protection or guarantee periods.
  • If you haven’t chosen any death benefits at outset when purchasing your annuity, then nothing will be payable unless you select a joint annuity and your partner lives longer than you.
  • The amount of tax you pay on your income is treated like your salary and depends on your total income for the tax year and your tax rate.
  • If the total value of your pension arrangements when taken, exceed the lifetime allowance, you may have additional tax charges to pay.
  • Lifetime annuity payments from value protection, guarantee periods and joint life annuities are tax-free if you as the original annuitant is under 75 when you die.
  • Income due under value protection, guarantee periods and joint life annuities are subject to tax at the marginal rate of the recipient if the original annuitant is 75 or over when they die.
  • Payments under a guarantee period may be subject to inheritance tax.

We have based this information on our current interpretation of UK tax rules (January 2020). Tax rules and regulations are subject to change and how they impact you will depend on your personal circumstances.

Should I choose to protect my annuity?

Should you die in the early years of your annuity plan, the total income you receive may be less than the pension fund used to purchase the annuity. Selecting a death benefit, either value protection or a guarantee minimum payment period, allows you to protect against this.

If you have loved ones who rely on your income, such as a spouse, civil partner or financial dependants, opting to include features that provide death benefits to your lifetime annuity could offer assurance that your family will be supported financially when you are no longer able to provide for them.

However, you need to consider your needs, as selecting to add these features could have a significant impact on the level of income you receive.

Seeking advice before taking out an annuity

Once you take out a lifetime annuity, you have a 30-day cancellation notice period. After this, you can’t change your mind, nor can you change or remove any death benefits you add to your annuity.

It is therefore crucial that you understand your options, so you can make an informed decision that’s right for you and your circumstances.

Our friendly customer service team can provide you with support in completing your lifetime annuity application and can talk you through the different options available to you. However, as a non-advised service, we can’t provide you with financial advice.

We recommend the following government service as a source of reference:

Money and Pensions Service

01159 659 570


Compare lifetime annuity rates

If you’ve decided a lifetime annuity is right for you, we can help you to compare annuity rates, both with and without the addition of death benefits, so you can see the effect on your potential annuity income.

All you have to do is complete one online form and we can help you compare guaranteed quotes from all providers in the annuity open market, helping you to secure a higher income for your pension savings.